Big Name Builder Charges Homeowner $800,000 Fee, then Hires Newly Licensed Contractor To Do the Work! (Allegedly) — BYHYU 090
Oh My Goodness. I’ve had such an eventful month. First of all, my computer died last week, which is why I didn’t have an episode for you. But I got a new MacBook Air a couple of days again, and I’m back in business.
Because of trouble with my computer and because I wanted to do something a little different, I spent more time away from the internet and library this month. I did more research out in the field.
At the beginning of the month, I went to the Kansas City Parade of Homes. And this past week, I ventured out to different homebuilding job sites in an attempt to gather names and contact information for some subcontractors who I could potentially hire for my project. So, this episode will cover some lessons that I’ve learned this past month.
Let’s start with the most shocking thing that I was informed about, which inspired the title of this episode.
This past Thursday, I rode around some new neighborhoods in my area where lots of new construction was going on. My goal was to get the names of the plumbers, electricians, HVAC guys and other subcontractors that were working on these new houses. Subs often have signs posted at the job sites. Remember, as a general rule, the subcontractors’ names that you see repeatedly are those that typically do reliable work, that’s why they get hired over and over again.
As I started compiling my list of subs, I ran across a large house with just 2 guys working on it. The house was just in the framing stage, but I could tell that it’s gonna be a big, fancy house.
Anyway, since the job site wasn’t too busy or chaotic, I decided to get out of my car and have a chat with the subs on site. Side note: if the construction site looks really busy, like the subs are working frantically to meet a deadline, don’t bother them. But these guys were working at a pretty comfortable, leisurely pace, so I thought I’d at least try to start a conversation with one or both of them.
The first guy spoke only Spanish, but pointed me toward his English speaking boss who was sawing lumber for a stairwell he was building. When I approached, he was actually using the saw so I had to wait a couple of minutes before I said “Hi.”
Then I said “Hey, I’m Michelle Nelson and I’m going to start building a house pretty soon. I’m actually thinking of being my own general contractor and I’m trying to get the names of some really good, reliable subcontractors because I’ve heard that if you get good subs, you’ll end up with a good house.”
He (I'll call him Jose) nodded his head in agreement, but didn’t say much so I continued. “It’s not that I have anything against builders, but I think I might be able to build my house myself with a little help and information from people like you.” He smiled and then he spilled the beans.
Now, when I drove past the house, I saw the sign of the builder, the general contractor, who had been hired to build that house. She is a well known, high-end builder in my area with a reputation for building very good quality houses. But here’s what Jose told me (I can’t confirm what he said, but I can’t think of any reason he would lie). Here’s what he said...
He told me that this house was a 6 million dollar house. He said with everything included, land ( in a gated, prestigious neighborhood), builders fee, landscaping, high-end finishes, everything together would be 6 million dollars. And he said that the homeowner was paying that big name builder a fee of $800,000. $800,000 y’all! But here’s the kicker…
That high-end, big shot builder picked up the phone and called Jose, who is also a general contractor. He recently got his contractors license. That big name, big shot builder hired Jose to build that 6 million house. She’s paying him to hire and manage his subcontractors and oversee about 80% of all the construction. So, this big shot general contractor is paying another, lesser-known general contractor to build a house that the homeowner is paying her (big shot builder) to build.
I was in disbelief. I knew that builders typically mark up labor and materials and charge homeowners 5-25% more than subs or building supply companies charge them. Builders pocket that markup on labor and materials as profit. I knew that, but I had no idea that some builders collect a builders fee from homeowners, then hire other builders to do their general contracting work.
Listen, no one expects builders to do the actual labor when building a house. That’s what subs are for. But shouldn’t we expect the general contractor to do the general contracting? Hiring, managing and overseeing the subs and labor?
Jose showed me a copy of his general contractors’ license (he was really proud of that). And he said he was actually asked by the big name builder to hire and manage the subcontractors that usually work for him. So he’s not just acting as a site supervisor. He's acting as the general contractor.
I asked Jose, “Why in the world would a homeowner pay a builder just to have that builder call another builder to do the general contracting?" He agreed that he doesn't make sense. But suggested that homeowners don’t know that such things go on. He also said that some homeowners want the big name. They want to be able to say that their house was built by a big shot builder, so they are willing to pay the big fee.
Well, BYHYU, I personally have no interest in name-dropping or bragging rights. I got Jose’s number and plan on hiring him as a consultant, if his references are good. Although he only recently got his contractors license, he’s been in the construction business for almost 20 years. He told me he acted as a consultant for another owner builder a few months ago who had my same philosophy (Philosophy: I can build my own house with a little help and lots of preparation). Before I hire Jose, I plan to call that owner builder and a few other references to see if Jose was as helpful to them as he says he is.
Now, I realize that this is probably a highly unusual situation. I know that most builders are doing their own general contracting, but learning this makes me even more weary of paying a builder a large fee to build my house.
This kind of thing also happens with subcontractors. Several months ago, I got an informal bid from a pretty well known foundation subcontractor just to get a ball idea of what my foundation might cost. When I got a ridiculously expensive price back, I asked my structural engineer about it.
Now structural engineers work with lots foundation subs, so my guy knew the foundation sub that I had gotten the bid from. My engineer told me that this foundation sub often hired other foundation companies to do his foundation work for him. My engineer personally knew of a case where the well known foundation guy charged the homeowner double what he had to pay the lesser known foundation guy. That way he could pay the lesser known crew and also have enough money left over to pay himself.
It just doesn’t seem ethical to me, but apparently it’s behavior that is sometimes seen in the construction industry.
Lesson learned: We should specifically ask when getting bids from general contractors and subcontractors if they themselves, or their company employees, will be doing the actual work. And we should also stipulate in the contract that work completed will be performed by the specific company that you are hiring and will not be subcontracted out to another organization.
Now it’s important to realize that not all contractors have employees and that it’s ok for them to hire independent trades people to help them with their projects. What you don’t want is company A hiring company B to work on our project (where company A is just a middle man, collecting a large fee for making a phone call--No thank you!).
And whoever you hire, make sure they are licensed and insured. That was Jose’s main piece of advice. He said it repeatedly. This is especially true if you act as owner builder because you will have to deal with the repercussions of anything that goes wrong with a unlicensed, uninsured sub.
Let’s move on to another lesson I learned this month.
Before I talked with Jose, I stopped at a plumbing supply company. I figured I'd try to get some opinions about the best plumbers in the area. So I asked a group of the employees standing around the counter what plumbers they would recommend. Who are the best plumbers in the area.
They all looked at each other, then looked at me, but gave me no information. I got nowhere with them. I was friendly and nice and they were friendly and nice, but they wouldn’t give me any specific names.
And I tried everything, including my favorite question “I know you can't give recommendations” I said, “but if you were building a house, what 2 or 3 plumbers would you want working on your project?” A young guy behind the counter said “Ooo, that’s a good question, but I can’t tell you.”
A short, middle aged worker said “we can’t tell you that because it’s a conflict of interest. If we named 3 of our favorite plumbers, the plumbers that were not named would ask, 'Why didn’t you put us on your list?’"
And he was right. I went to the supplier early in the morning, when lots of plumbers were going in and out of the store and could overhear our conversation. That wasn’t very smart on my part.
I left the supplier defeated, but not completely discouraged. I decided that riding around job sites would be my next task for the day. That’s when I met Jose.
So the lesson learned from that experience is to go to wholesale supply outlets during non-peak hours when fewer subcontractors are around. Start a conversation with one employee and ask him to show me the most popular fixtures in the store. That way you’ll be out of earshot of his colleagues and he’ll more likely feel comfortable speaking freely.
Also avoid the words “recommendation” or “recommend.” Any variation of the word “recommend” seems to make suppliers antsy. I’m personally gonna stick with my favorite question “If you were building a house, what subcontractors would you want working on your project?”
Another lesson… don’t take it personally or be discouraged if suppliers or subs are not willing, or not able to talk to you. Remember, we’re interrupting them on their jobs and, just like you and I are sometimes able to break away from our work duties to chat for a few minutes, and sometimes not, the same is true of suppliers and subs. Be considerate of their time and limitations.
I learned another lesson later that day when I had a conversation with an electrician named Joey at one of the job sites. He told me that he thought homeowners could definitively build their own homes, especially if they do some homework beforehand (like you’re doing right now). His main piece of advice was to stick to your plan. In other words, once you’ve finalized your house plan and gotten bids for that plan, stick with it. Otherwise, contractors will charge you a premium for making changes during construction.
You’ll want detailed construction drawings and written construction specifications, or specs. The construction drawings, or house plan, will show the home’s shape, appearance, and dimensions, while the written construction specifications will focus on what materials will be used and how they should be installed.
Joey said that as long as you stick with your original plan and specs, your bid should stand and you shouldn’t encounter significant increases in your agreed upon price. But, making changes, he said, is where subs and the builder, if you’re using one, can really make money off of you.
Change orders can be very expensive, so it’s best to avoid them. What we as homeowners have to remember is that one seemingly small change can affect many other parts of the project and can negatively affect the construction schedule.
The lesson here is to take plenty of time to come up with a detailed house plan and spec sheet. Make sure that your plan works for you now and in the future. It may take many months to come up with a well-thought-out plan, but it will be worth it because during construction, you’ll encounter fewer, if any, expensive change orders, fewer delays and less stress, since you won’t be making decisions on the fly.
For example, don’t just say that you want hardwood floors throughout. Specify exactly what rooms you want to have hardwood flooring installed and specify things like whether you want solid hardwood or engineered hardwood and the width, length and thickness of the planks, whether you want site finished or pre finished floors, and how you want them installed, whether that’s floated or glued and nailed in place. And you can, list the specific brand of flooring with its stock or model number.
You don’t have to know everything. You can ask your potential contractors, retailers and suppliers for their recommendations as you’re coming up with your final specifications. And you can consult the websites of national associations, like the National Wood Flooring Association, for suggestions and endorsements. But when it comes time to get bids, make sure all subs are bidding on the same exact specs, so when comparing bids, you’re comparing apples to apples. And if you get a bid that’s way below your other bids, double check that the sub hasn't left anything out.
When starting construction, Joey said, you’ll want a list of 3-5 subs that you can choose from just in case you have to fire your original choice for repeatedly not showing up, for not doing quality work or for some other reason.
Lesson Learned: We can do this!! Owner builders can be successful if we put in some work and research beforehand and get a solid list of subcontractors that we can go back to if we encounter problems with our original choice.
Another lesson? Take plenty of time to plan your house and stick with the plan to avoid costly change orders
Finally, let’s go over some of the lessons I learned and trends I saw at the Kansas City Parade of Homes. That’s a great free event to go to if you live fairly close by, or if you’re visiting the area. They have a fall and a spring parade of homes which features hundreds of new homes in all price ranges.
If you’re a regular listener to this podcast, you know that I like to go to Parades of Homes, open houses and models homes when I’m visiting different parts of the country to see what design trends and materials are most often being used in new construction. Looking at digital images on Houzz and Pinterest is great, but there’s nothing quite like walking through a new house and seeing real life examples of design, fixtures and materials. Let me tell you what I saw.
Starting with house exteriors. The exterior cladding on the new homes in the parade ranged from stucco, brick, shingle siding, plank siding and stone. Most houses had a mixture of 2 or 3 exterior materials in 2 or 3 different colors—Similar to what I talked about in episode 59 called How to Increase Your Home’s Curb Appeal— Part 1.
An newer exterior material being used this year is stained wood or wood-look cladding. Although I saw one house with the majority of the exterior covered with this wood cladding, most houses used it as an accent.
Now let’s talk about the inside of the houses. Almost none of them had large, formal entry foyers. Instead a small area, connected to the living space served as the foyer. Formal dining rooms and formal living rooms were also rare.
Kitchens were centrally located and large, but not huge. There were a ton of great rooms where the kitchen, dining and living spaces were all open to one another. In fact, the majority of houses that I visited over a 2 day period had great rooms.
Kitchen cabinets had simple clean lines— either shaker style or completely flat slab style cabinet fronts. I saw everything from medium to medium dark brown stained cabinets to painted cabinets, painted mostly in white, but also black, gray, and blue. Painted cabinets seemed to be a little more popular than stained wood cabinets.
But many, in fact, most kitchens, had cabinets with 2 different finishes. Stained wood and painted cabinetry were often seen in the same kitchen, and many kitchens had cabinets that were painted 2 different colors. Usually the kitchen island and/or the lower cabinets were a different color than the upper cabinets.
Many kitchen cabinets went all the way to the ceiling, but about a third of kitchens that I saw had kitchen cabinets that stopped several inches short of the ceiling. Side note: If it doesn’t matter to you whether your kitchen cabinets extend to the ceiling, save money by purchasing cabinets that stop short of the ceiling.
Countertops were made of mostly natural stone choices like marble, granite and quartzite. There was some man-made quartz, but, despite it’s low maintenance claim to fame, quartz didn't seem quite as popular in that part of the country.
Backsplashes were made of anything from classic white subway tile to slabs of natural stone to cement and ceramic tiles with bold patterns.
In great rooms, whatever flooring was in the living and dining spaces usually extended into the kitchen. Hardwood flooring was by far the most popular type of flooring--in medium to light tones. I didn’t really see too many dark wood floors—remember the darker the floors the easier it is to see dirt, footprints and dust on them.
Master bathrooms almost exclusively had free standing tubs with separate showers. Occasionally, I saw a master bath with no tub, just a large luxurious shower. Countertops were again mostly natural stone. Simple, neutral colored natural stone or ceramic or porcelain tile covered most shower surrounds. No more glass mosaic tile was so popular several years ago.
Faucets in the kitchen and bathroom ranged from silver to black to warm metals like brass.
The lighting was so much fun to look at. I love lighting fixtures and they are now bigger and bolder than ever. Almost every house that I visited had extremely oversized lighting fixtures. Huge chandeliers were in living spaces, master bedrooms and bathrooms, over dining tables and even in those small informal foyers. Gone are the petite pendants that we used to see over the kitchen island. Those small pendants have been replaced with 2 or 3 small to medium sized chandeliers right over the island.
Although lighting fixtures were very large, they had simple lines and a lot of open space. What I mean is many of fixtures have more a open frame kind of look that you can put your hand through. They’re large, but still light and airy looking.
Finally, most houses showed a lot of architectural interest with vaulted ceilings, with or without, wooden beams, interior stone accents and huge windows.
To see pics I took at the Kansas City Parade of Homes, head on over to the BYHYU Facebook Page and check my post from October 5.
Before I let you go, I wanted to ask you about your level of interest in participating in a private BYHYU Facebook community group. I recently got a message on the BYHYU Facebook page from Zach (Hey Zach) asking me about whether I plan to create a BYHYU Facebook community page. He went on to say that there is really nothing like our community on Facebook for the United States. He’s right and I’ve actually thought about starting a community page, but I want to get some feedback from you.
Would you participate in a Facebook community page if I started one? I’m thinking it would be a closed group where we could talk about the experiences and challenges that we face as we plan and build our homes.
Let me know if you’d like to get a community page started. You can email me or message me on the BYHYU Facebook page. My email address is firstname.lastname@example.org
Well, that’s all I have for your this week. I hope the little lessons that I’ve learned make your life easier. And I hope you come back for the next episode of BYHYU
Please remember that the purpose of this podcast is simply to educate and inform. It is not a substitute for professional advice. The information that you hear is based the only on the opinions, research and experiences of my guests and myself. That information might be incomplete, it’s subject to change and it may not apply to your project. In addition, building codes and requirements vary from region to region, so always consult a professional about specific recommendations for your home.
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